Cotton Falls on Bush's Quotas Limiting China Textile Imports
By KIRA MCCAFFREY BRECHT
OsterDowJones Commodity News
NEW YORK -- Cotton futures fell sharply on the New York Cotton Exchange in the wake of news that the Bush administration had imposed temporary quotas on some Chinese textile imports by invoking "safeguard" trade sanctions.
That action led to fears that China might import less cotton with which to produce the textiles it exports to the U.S.
March futures dropped by their daily three-cent limit early in the session, though trade buying trimmed that loss to 2.27 cents, leaving the contract at 76.19 cents a pound.
Cotton observers had been anticipating such news from the White House, following requests from U.S. companies for trade relief under a provision of China's World Trade Organization accession agreement. Temporary quotas are allowed if imports are causing a "market disruption," the U.S. Commerce Department said. The administration's committee on textile policy voted Monday to invoke the safeguard measures on three textile products -- knit fabric, bras, and dressing gowns and robes.
While March cotton futures have dropped about 10 cents since Oct. 30, prices had been rallying strongly since mid-August, in large part fueled by strong Chinese demand for U.S. cotton. The U.S. Department of Agriculture has estimated that China would need to import a record seven million 480-pound bales this year.
"The whole lynchpin to the bullish scenario is that China maintains its record-high consumption, and anything that threatens that assumption sparks a market reaction like we saw \*today," said Sharon Johnson, cotton analyst at Frank Schneider & Co. in Atlanta.
Ron Lawson, senior vice president at Wachovia Securities, played down the overall importance of the news to the cotton market. "It's not why we were limit down. It might have been the trigger, but it wasn't the charge that sent prices lower," he said. "The merchant community feels that China will still have to buy raw cotton to be turned into these goods that we can't buy."
"The measure being implemented, on the surface, seems to restrict our consumption of Chinese goods. But, it compels us to go to the table to iron out our WTO disagreements," Mr. Lawson added.
Mr. Lawson and others said the "bulk of the panic selling" came from speculative accounts, once the March contract opened below Monday's session low. NYCE floor brokers said heavy rounds of preplaced sell orders were triggered between 75.60 and 76.00 cents, which accelerated the market's decline.
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